for the period ended 30 June 2020

Financial position

This section analyses AFMA's assets used to conduct its operations and the operating liabilities incurred as a result. Employee related information is disclosed in the People and Relationships Section.

AFMA currently has 1 (2019: 1) agreement for the leasing of premises which have provisions requiring AFMA to restore the premises to their original condition at the conclusion of the lease. AFMA has made a provision to reflect the present value of this obligation for the Majura Park office in Canberra. The provision was adjusted in 2019-20 to match the underlying lease term excluding extension periods for consistency with whole of government lease guidelines.

Accounting policies - financial position

Cash

Cash is recognised at its nominal amount. Cash and cash equivalents includes:

(a) cash on hand;

(b) demand deposits in bank accounts with an original maturity of 3 months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value;

(c) cash held by outsiders; and

(d) cash in special accounts.

Financial Assets

Please refer to Note 6 Managing Uncertainty for accounting policies for financial assets.

Receivables

Receivables for goods and services, which have 30 day terms, are recognised at the nominal amounts due less any impairment allowance account. Collectability of debts is reviewed at end of reporting period. Allowances are made when collectability of the debt is no longer probable.

Acquisition of Assets

Assets are recorded at cost on acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. Financial assets are initially measured at their fair value plus transaction costs where appropriate.

Property, Plant and Equipment

Asset Recognition Threshold: Purchases of property, plant and equipment are recognised initially at cost in the balance sheet, except for purchases costing less than $5,000, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total). The initial cost of an asset includes an estimate of the cost of dismantling and removing the item and restoring the site on which it is located. This is particularly relevant to 'make good' provisions for AFMA's Canberra office. These costs are included in the value of AFMA's buildings with a corresponding provision for the 'make good' recognised.

Revaluations

Following initial recognition at cost, property, plant and equipment (excluding ROU assets) were carried at fair value. Valuations were conducted with sufficient frequency to ensure that the carrying amounts of assets did not differ materially from the assets' fair values as at the reporting date. The regularity of independent valuations depended upon the volatility of movements in market values for the relevant assets. Revaluation adjustments were made on a class basis. Any revaluation increment was credited to equity under the heading of asset revaluation reserve except to the extent that it reversed a previous revaluation decrement of the same asset class that was previously recognised in the surplus/deficit. Revaluation decrements for a class of assets were recognised directly in the surplus/deficit except to the extent that they reversed a previous revaluation increment for that class.

Any accumulated depreciation as at the revaluation date was eliminated against the gross carrying amount of the asset and the asset was restated to the revalued amount.

Depreciation

Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to AFMA using, in all cases, the straight-line method of depreciation. Depreciation rates (useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future reporting periods, as appropriate.Depreciation rates applying to each class of depreciable asset are based on the following useful lives:

The depreciation rates for ROU assets are based on the commencement date to the earlier of the end of the useful life of the ROU asset or the end of the lease term.

Impairment

All assets were assessed for impairment at 30 June 2020. Where indications of impairment exist, the asset's recoverable amount is estimated and an impairment adjustment made if the asset's recoverable amount is less than its carrying amount.

The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. Where the future economic benefit of an asset is not primarily dependent on the asset's ability to generate future cash flows, and the asset would be replaced if AFMA were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

Derecognition

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

Intangibles

AFMA's intangibles comprise purchased and internally developed software for internal use. These assets are carried at cost less accumulated amortisation and accumulated impairment losses. Software is amortised on a straight-line basis over its anticipated useful life. The useful lives of AFMA's software assets are 3 to 10 years (2019: 3 to 10 years). All software assets were assessed for indications of impairment as at 30 June 2020.

Fair Value Measurement

AFMA deems transfers between levels of the fair value hierarchy to have occurred at the end of the reporting period. No transfers between levels occurred during 2019-20.

Significant Accounting Judgements and Estimates

In the process of applying the accounting policies listed in this note, AFMA has made judgements that have the most significant impact on the amounts recorded in the financial statements with respect to the fair value of land and buildings. The fair value of land and buildings has been taken to be the market value of similar properties as determined by an independent valuer. In some instances, AFMA buildings are purpose-built and may in fact realise more or less in the market. No accounting assumptions and estimates have been identified that have a significant risk of causing a material adjustment to carrying amounts of assets and liabilities within the next accounting period.

Financial Liabilities

Please refer to Note 6 Managing Uncertainty for accounting policies for financial liabilities.